Why I Would Buy JD Sports Fashion PLC But Sell Afren Plc And Enquest Plc

Today I am looking whether these three market movers are worthy of your consideration.

JD Sports Fashion

Boosted by a bubbly Christmas update, ‘sports fashion’ brand leader JD Sports Fashion’s (LSE: JD) shares were up more than 6% in Friday business at the time of writing. The company announced that like-for-like in-store sales leapt an impressive 12% during the five weeks to January 3, driven by enduring strength across its Sports fascias — this area accounts for 85% of total revenues.

Building on its success at home, JD Sports is shelling out vast sums to expand its presence on the continent, a programme which I believe should deliver further delicious revenues growth in the long term. The company has already created profitable operations in Spain, France and Ireland, and is gaining increasing attention from its raft of top-level sports brand suppliers, a positive omen which should support its European invasion.

Broker Investec expects the company to see earnings surge 24% this year, resulting in a P/E multiple of just 13.9 times — a reading below 15 times is widely regarded as attractive value for money. And an additional 8% improvement next year drives the multiple still lower to 12.9 times.


Although JD’s end-of-week performance has been nothing short of terrific, the sports retailer’s march fails to match that of oil exploration play Afren (LSE: AFR) which was recently up 15% in end-of-week trade. The company has been boosted by speculation over a possible takeover by Seplat Petroleum Development Co.

However, I fail to share the same enthusiasm for the stock given the precarious state of the oil market, a situation which is forcing companies across the globe to scale back on unnecessary expenditure and build up their cash piles. The Brent benchmark slipped to its cheapest for almost six years just this week around $45.20 per barrel.

Afren also worried the market this week by slashing resource estimates at its Barda Rash project in Kurdistan to 250 million barrels, a colossal 83% drop from its previous projections. Some downgrade has been expected by the market, but the scale of the reduction has prompted huge shock — Afren has said that it is now “considering its strategic options” at the site, in which it is operator and holds a 60% stake.

Afren currently changes hands on a high P/E rating of 18.9 times for 2015, with the business expected to chalk up a hefty 60% earnings decline by City analysts. Expectations of a revenues burst in 2016 drives is expected to propel earnings 103% higher next year, however, creating a far more palatable P/E multiple of 7.4 times — any reading below 10 times is generally regarded as a bargain.

Still, I believe that next year’s multiple simply reflects the colossal risks associated with investing in the oil market at the current time. And should the black gold continue to drop — forecasts of $20 per barrel continue to do the rounds — and production disappoint in the near-term, Afren could be in severe danger of huge downgrades. And signs of enduring end-market weakness could also kick any tie-up with Seplat into the long grass.


While Afren has surged ahead in Friday business, fellow fossil fuel play Enquest (LSE: ENQ) has been amongst the FTSE’s biggest fallers and was last more than 4% lower on the day.

The company’s descent have reflected the collapse in the oil price almost blow-for-blow, with Enquest shedding more than 80% since July alone. So news that BP expects oil to average between $50 and $60 per barrel for the next two to three years, according to the BBC, further share price weakness could be on the cards.

These pressures are expected to drive earnings at Enquest 64% lower in 2015, in turn leaving the business dealing on a P/E multiple of 12.3 times, also representing a premium to the wider oil sector average.

The company’s huge Alma/Galia field in the North Sea is expected to produce maiden oil during 2016, producing a 158% rebound in the bottom line and shoving the P/E multiple to just 4.9 times. Still, I believe that the impact of a subdued oil price could cast doubt over the economic viability of this and the company’s other projects, a situation which could smash earnings and prompt operational delays.

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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Afren. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.